New Microsoft EULA Limits U.S. Class-Action Lawsuits

A Microsoft blog post by Tim Fielden, assistant general counsel at Microsoft, before the Memorial Day weekend describes the EULA changes. The change in policy mandates legal arbitration for customers and forbids class-action lawsuits as a precondition to using Microsoft's products. This mandatory arbitration clause of the EULA is binding and is not an option.

Microsoft's Xbox Live EULA already has this binding arbitration language in it. It indicates that customers must agree to give up some of their legal rights if they want to use the product.

"You understand and acknowledge that by agreeing to binding arbitration, you are giving up the right to litigate (or participate in as a party or class member) all disputes in court before a judge or jury," the EULA states in clause 18.1.4.

Microsoft plans to extend this restriction on customers' legal rights to other Microsoft products. Fielden noted that "we will implement similar changes in user agreements for other products and services in the coming months as we roll out major licensing, hardware or software releases and updates." He did not specify which products would fall under the new rules. Microsoft refused to provide a list of affected products when asked for one by GeekWire.

Microsoft's EULA change comes in the wake of a 2011 U.S. Supreme Court ruling that limited how state courts had interpreted U.S. citizens' legal rights. In the case, called AT&T v. Concepcion, AT&T Wireless had advertised a free cell phone, but it billed the Concepcions $30 for the sales tax. They filed a class action lawsuit, but AT&T's contract specified mandatory arbitration instead. California courts permitted the class action status of the suit to proceed, but that status ultimately was disallowed by the Supreme Court, citing an interpretation of the Federal Arbitration Act. The Supreme Court's 5-to-4 decision has since opened the door for corporations to simply remove the public's legal rights via contract law.

"Microsoft has decided to take away the rights of millions of its customers," said Christine Hines, consumer and civil justice counsel at Public Citizen, in a phone interview on Wednesday.

Public Citizen is a public advocacy and consumer watchdog group that was founded by Ralph Nader. It was Public Citizen that was on the losing side of the AT&T v. Concepcion case. Deepak Gupta, now serving as an adjunct professor at Georgetown Law Center, argued that case before the Supreme Court when he was part of the Public Citizen Litigation Group. In an April Westlaw Journal article (PDF), Gupta noted that these binding arbitration clauses in contracts essentially function as "an exit clause from the civil justice system."

According to Hines, Public Citizen is backing the Arbitration Fairness Act of 2011 (H.R. 1873, S. 987), which states that the Federal Arbitration Act "was intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power." The proposed bill also claims that the Supreme Court has "changed the meaning of the [Federal Arbitration] Act so that it now extends to consumer disputes and employment disputes." The bill was introduced in the House on May 12, 2011 and is sponsored by Rep. Henry Johnson, D-Ga.

Hines said that Public Citizen realizes that the bill faces a difficult time in getting passed by Congress. In addition to that bill, the Dodd-Frank Act, which deals with corporate financial reforms, offers the possibility of contesting mandatory arbitration, she noted. Mandatory arbitration clauses have been particularly used by the banking and credit card industries, she added.

Other mobile telcos also have instigated the practice of mandatory arbitration in contracts, according to a CNet article.

Class action lawsuits are frequently critiqued as only benefiting lawyers, but it's one of the few legal methods remaining to address an ill suffered by many people. In the AT&T v. Concepcion case, most people wouldn't individually file suit. "They know that the average consumer is not going to pursue a $30 claim on their own," Hines explained.

One notable case for Microsoft in this context was a lawsuit associated with its "Vista Capable" marketing claims. Consumers bought PCs with a sticker suggesting that the machines were capable of running Vista but they had to read the fine print to know that it wouldn't run some of Vista's promoted features, such as the "Aero" glass-like user interface. A lawsuit over that matter was denied class-action status by a judge in 2009. However, with Microsoft's new EULA in place, such class-action claims likely won't be possible at all.